Understanding S&P 500 Diversification

The S&P 500 is heavily influenced by a small group of dominant tech stocks known as the Magnificent Seven, raising questions about its true diversification. While many suggest investing in the S&P 500 for its low cost and market representation, it’s important to recognize that this index is market-cap weighted. This means that larger companies like Apple and Microsoft have a disproportionately high impact on the index's performance, making it vital to understand what owning the index entails. Despite these concerns, the S&P 500 still represents a diverse range of the top 500 companies in the U.S., but investors should consider it as just one part of a broader, diversified portfolio strategy.